PNFP In The News

Lending to small businesses picks up

Lending to small businesses is on the rise again, a shift that could bode well for hiring and the overall economy.

More than five years after the financial crisis erupted and banks began booking massive losses, they are approving more loans to businesses that are seeking to grow.

During the crisis, “a lot of banks were getting squeezed and having to reduce the size of their banks,” said Ron Samuels, CEO of Avenue Bank in Nashville. “There was a shrinkage and a tightening of credit. What I think you are seeing now is capital positions are getting back in line. I think demand has picked up in the small-business world.”

The evidence is mounting, including:

Banks nationwide had $287.6 billion in outstanding loans to small businesses as of Dec. 31, up 1.4 percent from a year earlier, according to the Federal Deposit Insurance Corp.

In January, the dollars lent to small businesses by banks, independent commercial finance companies and corporations increased 4 percent from last year, according to Thomson Reuters and PayNet.

A February survey by Pepperdine University’s Graziadio School of Business and Management found that 39 percent of small-business owners who applied for bank loans in the previous three months were successful, up from 34 percent in a survey taken in October and November.

Many Nashville bank leaders argue that the stalled loan growth has been tied to low loan demand in recent years, rather than to the quality of loan applications or the banks’ capital levels.

Chip Higgins, head of business banking at Nashville-based Pinnacle Financial Partners, said many small businesses have sought to reduce debt levels in the years amid economic uncertainty, rather than add to it, restraining the number of loans being issued. Banks, meanwhile, have been hungry to grow their loan portfolios, he said.

“It’s a good time to be borrowing,” Higgins said. “There is great demand on our side to find good loans so that we can build our balance sheet and increase our earnings.”

With business picking up in Middle Tennessee, especially for those tied to real estate and construction, more companies are reaching out to banks for more capital, he said.

“Contractors and engineers and those types of (trades) are probably busier now than in the last three years,” Higgins said. “If you look around Nashville, there are cranes everywhere, which is new to our landscape compared to ’08, ’09.”